A set of guidelines and procedures for extending credit to customers.
A credit policy is a set of guidelines and procedures for extending credit to customers. It is a critical component of effective accounts receivable management, as it helps to establish clear expectations and standards for credit decisions and reduces the risk of bad debts.
A credit policy typically includes a variety of elements, such as:
By establishing clear guidelines and procedures for extending credit to customers, a credit policy helps to reduce the risk of bad debts, improve cash flow, and maintain positive relationships with customers. It also provides a framework for managing accounts receivable more effectively and can help to identify areas for improvement in the credit and collection processes.
Overall, a credit policy is an important component of accounts receivable management, and should be developed carefully to ensure that it is in line with the company's financial objectives and customer needs. By establishing clear standards and procedures for credit decisions and collections, companies can improve their cash flow, reduce the risk of bad debts, and maintain positive relationships with their customers.